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Mcs new


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Mcs new

  1. 1. Management Control System <ul><li>Management : Manage Men Tactfully </li></ul><ul><li>Group of persons, who directs and manages all the activities, to achieve common goal. </li></ul><ul><li>Coordinated activities to direct and control an organization. </li></ul><ul><li>Control : means taking the actions in such a way that organization achieves intended results. </li></ul><ul><li>System : prescribed or pre-decided way of carrying out the activities. </li></ul>
  3. 3. Characteristics of Control System <ul><li>Detector OR Sensor : device that measures what is actually happening in the process being controlled. </li></ul><ul><li>Assessor : device that compares what is happening with some standard or goal or expected result or what should happen. </li></ul><ul><li>Effector /feedback : that alters behaviour if assessor indicates the need to do so. </li></ul><ul><li>Communication network : devices that transmit information between the detector and assessor and between the assessor and effector. </li></ul>
  4. 4. Management Control <ul><li>Can be defined as the process by which managers influence other members of the organization to implement the organization’s strategies. </li></ul>
  5. 5. This involves <ul><li>Planning what organization should do . </li></ul><ul><li>Coordinating the activities of all parts of the organization. </li></ul><ul><li>Communicating information. </li></ul><ul><li>Evaluating information. </li></ul><ul><li>Deciding what, if any action should be taken. </li></ul><ul><li>Influencing people to change their behaviour/take action in desired manner. </li></ul>
  6. 6. <ul><li>The Cybernetic paradigm </li></ul><ul><li>and control process </li></ul><ul><li>Cybernetics : Science of communication and Control. </li></ul><ul><li>The paradigm as developed by Griesenger for the control process— </li></ul><ul><li>Set goals and performance measures </li></ul><ul><li>Measure achievement. </li></ul><ul><li>Compare achievement with goals. </li></ul><ul><li>Compute variances. </li></ul><ul><li>Report variances. </li></ul><ul><li>Determine causes of variance. </li></ul><ul><li>Take action to eliminate the variance. </li></ul><ul><li>Follow up to ensure that goals are met. </li></ul>
  7. 7. Strategy Formulation <ul><li>the process of deciding on new strategies. </li></ul><ul><li>In this activity creative and innovative thinking is strongly encouraged. </li></ul>
  8. 8. Strategic planning <ul><li>the process of deciding on programmes that the organization should undertake and on the approximate amount of resources that will be allocated to each programme over next several years. </li></ul><ul><li>In formal strategic planning process, first step is to write descriptions of the organization’s goals and strategies. </li></ul>
  9. 9. Benefits of strategic planning <ul><li>Provides framework for preparation of budget, facilitates the formulation of effective operating budget, optimal resource allocation. </li></ul><ul><li>Management development tool: provides excellent management education and training tool that provides managers with a process for thinking about strategies and their implementation. </li></ul><ul><li>Mechanism for forcing management to think long term: Managers tend to get engrossed in day-to-day activities. This process forces managers to make time for thinking through important long-term issues. </li></ul><ul><li>Means of aligning managers with corporate strategies: In this process lot of debates, discussions, negotiations take place due to which corporate strategies and their implications get clear to line managers. </li></ul>
  10. 10. Limitations of strategic planning <ul><li>Danger of this process becoming form- filling exercise, devoid of strategic thinking. </li></ul><ul><li>Organization may create large strategic planning department. </li></ul><ul><li>Strategic planning is time consuming and expensive. </li></ul>
  11. 11. <ul><li>For companies which are having formal annual strategic planning process in place It involves following steps: </li></ul><ul><li>Reviewing and updating the strategic plan from last year. </li></ul><ul><li>Deciding on assumptions and guidelines. </li></ul><ul><li>First iteration of new strategic plan. </li></ul><ul><li>Analysis. </li></ul><ul><li>Second iteration of new strategic plan. </li></ul><ul><li>Review and approval. </li></ul>
  12. 12. Developing an organization structure <ul><li>Types of organizations </li></ul><ul><li>Functional Organization </li></ul><ul><li>Business Unit Organization </li></ul><ul><li>Matrix Organization </li></ul>
  13. 13. Responsibility centers <ul><li>is an organization unit that is headed by a manager, who is responsible for its activities and to achieve objectives. </li></ul><ul><li>Company is collection of various responsibility centers. </li></ul><ul><li> </li></ul>
  14. 14. Responsibility centers Activity Inputs Outputs Resources used Goods or Services Measured by costs.
  15. 15. <ul><li>Efficiency is the ratio of outputs to inputs. OR output per unit of input. </li></ul><ul><li>Effectiveness is relationship between output and objectives. </li></ul>
  16. 16. Types of responsibility centers <ul><li>Engineering Expense centers. e.g. Manufacturing, warehousing, distribution. </li></ul><ul><li>Discretionary Expense centers e.g. administrative and support units (legal, public relations, human resources), R &D, advertising activities </li></ul><ul><li>Revenue centers e.g. marketing and sales </li></ul><ul><li>Profit centers e.g. business units </li></ul><ul><li>Investment centers e.g. business units </li></ul>
  17. 17. Profit Centers <ul><li>When a responsibility center’s financial performance is measured in terms of profit, it is called Profit center. </li></ul><ul><li>In business unit type of organization every business unit can be treated as profit center. </li></ul><ul><li>This is also called divisionalization. </li></ul><ul><li>In such case business unit head is responsible for profit of his unit. </li></ul>
  18. 18. Advantages of profit centers: <ul><li>Quality of decisions improves. </li></ul><ul><li>Speed of operating decisions is better. </li></ul><ul><li>Corporate office is relieved of day-to-day decision-making and can concentrate on broader issues. </li></ul><ul><li>Managers, subject to fewer corporate restraints, are free to use their imagination and initiative. </li></ul><ul><li>Provide excellent training ground for the managers. </li></ul><ul><li>Profit consciousness is enhanced. </li></ul><ul><li>This system provides top management with ready-made information on profitability of the company’s individual components. </li></ul><ul><li>Profit centers become responsive to improve their competitive performance. </li></ul>
  19. 19. Difficulties with profit centers : <ul><ul><li>Loss of control of corporate to some extent </li></ul></ul><ul><ul><li>If business unit is not well informed quality of decisions is hampered. </li></ul></ul><ul><ul><li>Friction between business unit and corporate. </li></ul></ul><ul><ul><li>Competition between different units of the organization may increase. </li></ul></ul><ul><ul><li>May result into additional cost. </li></ul></ul><ul><ul><li>There may be emphasis on short-term profitability. </li></ul></ul><ul><li>There is no completely satisfactory system for ensuring that optimizing the profits of each individual profit center will optimize the profits of the company as a whole. </li></ul>
  20. 20. Constraints on Business Unit Authority: <ul><li>Constraints from other business units: such as product decision, marketing decision, and procurement decision. </li></ul><ul><li>Constraints from corporate management: such as resulting from strategic considerations, those resulting because uniformity is required, from economies of centralization. </li></ul>
  21. 21. Measuring Profitability <ul><li>Types of Profitability Measures: </li></ul><ul><li>Contribution margin </li></ul><ul><li>Direct Profit </li></ul><ul><li>Controllable Profit </li></ul><ul><li>Income before taxes </li></ul><ul><li>Net Income </li></ul><ul><li>Managers’ performance should be measured against those items they can influence, even if they do not have total control over those items. </li></ul>
  22. 22. Some frequently used terms <ul><li>Sales and other major revenues </li></ul><ul><li>Variable cost </li></ul><ul><li>Contribution margin=sales- variable cost </li></ul><ul><li>Fixed cost </li></ul><ul><li>Segment margin=contribution margin-direct fixed cost </li></ul><ul><li>Attributable fixed costs </li></ul><ul><li>Segment profit contribution=Segment margin-attributable fixed costs </li></ul><ul><li>Corporate net income= Segment profit contribution-firm wide costs </li></ul><ul><li>Depreciation </li></ul>
  23. 23. Investment Centers <ul><li>It is a responsibility center in which inputs are measured in terms of cost/expenses and outputs are measured in terms of revenues and in which assets employed are also measured. </li></ul><ul><li>Autonomy of investment centers to acquire assets may be full or partial but measurement of their performance is definitely judged by its use of assets. </li></ul>
  24. 24. <ul><li>Acquiring assets is an act of making a long term commitment to use the asset effectively and efficiently for the organization. </li></ul><ul><li>Investment centers have explicit obligation to achieve the expected profit related to the quantum of assets acquired. </li></ul><ul><li>Investment centers are evaluated on profits, not in absolute terms but in relation to corresponding investment </li></ul>
  25. 25. The performance of Investment center is measured in terms of <ul><li>Return on Investment (ROI) =Profit/Investment OR (Profit contribution/Sales revenue)*(sales revenue/Assets) </li></ul><ul><li>Residual Income (RI) or Economic value added (EVA) =Operating income-Implied interest </li></ul>
  26. 26. Transfer Pricing <ul><li>If two or more profit centers are jointly responsible for product development, manufacturing and marketing, each should have share in the revenue generated when the product is finally sold. </li></ul><ul><li>Transfer Price is the mechanism for distributing this revenue. </li></ul>
  27. 27. Objectives Of Transfer Price <ul><li>Each business unit should get relevant information to determine optimum trade off between company costs and revenues. </li></ul><ul><li>To induce cooperation and coordination to take goal congruent decisions </li></ul><ul><li>To measure, economic performance of the individual business units. </li></ul><ul><li>Should be simple to understand and easy to administer. </li></ul>
  28. 28. <ul><li>Fundamental principle is that the transfer price should be similar to the price that would be charged if product were to be sold to outside customers or purchased from outside vendors . </li></ul><ul><li>Sourcing decision and transfer price decisions are to be reviewed periodically </li></ul>
  29. 29. Prerequisites for effective transfer price mechanism: <ul><li>Competent managers </li></ul><ul><li>Good atmosphere </li></ul><ul><li>Market price availability </li></ul><ul><li>Freedom to source </li></ul><ul><li>Freedom to sell </li></ul><ul><li>Full information </li></ul><ul><li>Fair negotiations </li></ul>
  30. 30. Different ways to decide transfer prices <ul><li>Market price </li></ul><ul><li>Full cost basis </li></ul><ul><li>Cost +synthetic market price </li></ul><ul><li>Variable cost +Lump sum </li></ul><ul><li>Prorating overall contribution </li></ul><ul><li>Two sets of prices </li></ul>
  31. 31. Goal Congruence <ul><li>Management has a task to arrange organizational conditions and methods of operations, so that people can achieve their own goals best by directing their efforts towards organizational objectives . </li></ul><ul><li>Control system has to be designed in such a way that it encourages the managers of responsibility centers to take actions that are in their own best interests as well as in the best interest of the overall organization. </li></ul><ul><li>Measures of performance of the units should be so developed that it automatically leads to goal congruence. Those should also satisfy organizations short term and long term goals. </li></ul>
  32. 32. Budget and Budgetary Control <ul><li>Budget : A financial and/or quantitative statement, prepared and approved prior to a defined period of time , of the policy to be pursued during that period for the purpose of attaining given objectives. It can include income expenditure and employment of capital </li></ul>
  33. 33. <ul><li>Budget is a plan covering all phases of organizational activities for definite period in future. </li></ul><ul><li>It is generally for the period of one year. </li></ul><ul><li>Estimates profit potential </li></ul><ul><li>It is a management commitment; managers agree to accept responsibility for attaining the budgeted objectives. </li></ul><ul><li>The budget proposal is reviewed and approved by authority higher than the budgetee </li></ul><ul><li>Periodically actual performance is compared with plan, variances analyzed and explained and budget changed only in exceptional circumstances. </li></ul><ul><li>It is structured by responsibility centers. </li></ul>
  34. 34. Purpose and use of budget <ul><ul><li>To fine tune the strategic plan </li></ul></ul><ul><ul><li>To help coordinate the activities of all departments of the organization </li></ul></ul><ul><ul><li>To assign the responsibility to managers, to authorize the amounts they are permitted to spend, and to inform the performance that is expected of them. </li></ul></ul><ul><ul><li>To obtain a commitment to budget, which is the basis for evaluating their actual performance . </li></ul></ul>
  35. 35. Budgetary Control <ul><li>The process of establishment of budgets in line with strategic objectives, relating it to the responsibilities of executives, continuously comparing actual results with plan. </li></ul>
  36. 36. Preparation of budgets <ul><li>Top down process </li></ul><ul><li>Bottom up process </li></ul><ul><li>Combination of above two </li></ul>
  37. 37. Budgeting process <ul><li>Normally finance controller or Budget committee is responsible for this process. </li></ul><ul><li>Publishing procedure and forms, assumptions for preparation of the budget </li></ul><ul><li>Co ordinates with all departments, ensures that necessary information is properly communicated between interrelated departments. </li></ul><ul><li>Provides assistance, analyzes, recommends </li></ul><ul><li>Documents and circulates final budget </li></ul><ul><li>Analyzes the reported performance against approved budget </li></ul><ul><li>Administers revision if required. </li></ul>
  38. 38. Master Budget for manufacturing company <ul><li>Direct Labour </li></ul><ul><li>Factory overheads </li></ul><ul><li>Production cost </li></ul><ul><li>Ending inventory </li></ul><ul><li>Cost of goods sold </li></ul><ul><li>Selling and distribution cost </li></ul><ul><li>Administration expenses </li></ul><ul><li>Research and Development cost </li></ul><ul><li>Capital expenses </li></ul><ul><li>Sales </li></ul><ul><li>Production </li></ul><ul><li>Plant utilization </li></ul><ul><li>Maintenance expenses </li></ul><ul><li>Power and Fuel usage </li></ul><ul><li>Quality of products </li></ul><ul><li>Direct material usage </li></ul><ul><li>Indirect material usage </li></ul><ul><li>Direct material purchase </li></ul>Budgeted balance sheet and Profit & Loss a/c, will be prepared by taking into consideration following different budgets for various activities.
  39. 39. Zero Base budgeting <ul><li>Zero base as the name suggests starts with the premise that the budget for the next period is “zero”, unless the demand for a function, process, project or activity is justified for each rupee. Each manager has to justify money requirement and the effect if this money is not spent. </li></ul>
  40. 40. Capital budgeting and control <ul><li>Capital budgeting is defined as decision-making process by which firms evaluate the purchase of major fixed assets, machinery, equipment, building expansion, acquisitions of other firms etc. </li></ul>
  41. 41. Importance of Capital Budget <ul><li>Affects profitability </li></ul><ul><li>Long time periods </li></ul><ul><li>Substantial expenditures </li></ul><ul><li>Irreversible </li></ul><ul><li>Scarce capital resources </li></ul><ul><li>Difficulties in evaluation </li></ul>
  42. 42. <ul><li>Kinds of proposals : </li></ul><ul><ul><li>Replacement </li></ul></ul><ul><ul><li>Expansion </li></ul></ul><ul><ul><li>Diversification </li></ul></ul><ul><ul><li>Research and development </li></ul></ul><ul><ul><li>Miscellaneous </li></ul></ul>
  43. 43. Methods of Capital Investment Evaluation <ul><li>Traditional Techniques of evaluation : </li></ul><ul><li>Payback period=cost of project/ annual cash inflow. </li></ul><ul><li>Payback reciprocal=1/payback period. </li></ul><ul><li>Accounting rate of return(Annual revenue from project- Annual expenditure of project)/Project investment*100 </li></ul><ul><li>Discounted cash flow methods : </li></ul><ul><li>Net present value method (NPV) </li></ul><ul><li>Profitability index=Present Value of cash inflow/Present value of cash outflow </li></ul><ul><li>Internal rate of return---Interest rate at which </li></ul><ul><li>NPV =0 </li></ul>
  44. 44. Risks in capital expenditure <ul><li>Risk is perceived variability of actual returns from the estimated returns. </li></ul><ul><li>Methods to quantify risks : </li></ul><ul><li>Sensitivity analysis: pessimistic, realistic, optimistic estimates about the cash inflows and outflows. </li></ul><ul><li>Assigning probability to expected cash flows. </li></ul><ul><li>Standard deviation and Coefficient of variation. </li></ul><ul><li>Risk adjusted discount rates: By using NPV method discount rates are adjusted for various probabilities. </li></ul><ul><li>Certainty equivalent approach: Instead of adjusting the discount rates the cash flows are adjusted. </li></ul><ul><li>Probability distribution approach </li></ul><ul><li>Decision trees approach. </li></ul>
  45. 45. Risk analysis in practice <ul><ul><li>Conservative estimate of revenue </li></ul></ul><ul><ul><li>Flexible investment yardstick </li></ul></ul><ul><ul><li>Safety margins in cost figures. </li></ul></ul><ul><ul><li>Acceptable overall certainty index. </li></ul></ul>
  46. 46. Audits <ul><li>Audit is systematic, independent process for obtaining evidence and evaluating it objectively to determine the extent to which budgets are achieved/procedures are followed. </li></ul><ul><li>Types of Audit </li></ul><ul><li>Internal Audit </li></ul><ul><li>Financial Audit </li></ul><ul><li>Cost Audit </li></ul><ul><li>Management Audit </li></ul><ul><li>Operations Audit </li></ul>
  47. 47. Basic principles of audit <ul><li>Integrity, objectivity and independence </li></ul><ul><li>Confidentiality </li></ul><ul><li>Skill and competence </li></ul><ul><li>Documentation </li></ul><ul><li>Planning </li></ul><ul><li>Evidence </li></ul><ul><li>System and internal control </li></ul><ul><li>Conclusion </li></ul><ul><li>Reporting </li></ul>
  48. 48. <ul><li>Internal Audit is a tool for periodical review of organizational systems and procedures, financial aspects, directed towards compliance to set goals and objectives and standards. </li></ul><ul><li>Financial Audit : It is for the past period normally for one year, independent evaluation by external auditor for assessing and attesting accuracy and reliability of financial data. It is performed on planned basis rather than on request. </li></ul><ul><li>This is also called as statutory audit. As per company’s act it is mandatory for all private and public ltd. companies to have its accounts audited every year by Chartered accountant. </li></ul>
  49. 49. <ul><li>Cost Audit : An audit of efficiency, of minute details of expenditure while work is in progress and not post mortem. Important aspects of cost audit are, </li></ul><ul><li>Management Audit: It deals with all aspects of the management process. </li></ul><ul><li>Operations Audit: It is confined to the various activities and operations in the functional areas. </li></ul>
  50. 50. Variance analysis <ul><li>Variance: Variation between planned performance and actual performance </li></ul><ul><li>Reasons for variance: </li></ul><ul><li>Specific management decision taken to respond to new developments not envisaged & planned initially. </li></ul><ul><li>Because of some uncontrollable factors eg. Changes in Govt.policy </li></ul><ul><li>Controllable factors not monitored properly. </li></ul>
  51. 51. Calculation of various variances <ul><li>Revenue Variances </li></ul><ul><li>Sales price variance=(Actual price-Standard price)*Actual volume </li></ul><ul><li>Sales volume variance=(Actual volume-Budgeted volume)*Budgeted price </li></ul><ul><li>Mix variance=((Total actual volume of sales for all products* Budgeted proportion)-Actual volume of sales)*Budgeted per unit contribution </li></ul><ul><li>Volume variance=((Total actual volume of sales for all products* Budgeted proportion)- Budgeted volume of sales)*Budgeted per unit contribution </li></ul><ul><li>Mix and Volume variance=(Actual volume-Budgeted volume)* Budgeted per unit contribution </li></ul>
  52. 52. <ul><li>Market share variance=((Actual sales-(Industry volume*Budgeted market share)*Budgeted per unit contribution </li></ul><ul><li>Industry volume variance=(Actual industry volume-Budgeted industry volume)* Budgeted market share* Budgeted per unit contribution. </li></ul><ul><li>Expense Variances </li></ul><ul><li>Fixed cost variance=Actual fixed costs- Budgeted fixed costs </li></ul><ul><li>Actual Variable costs =Budgeted variable costs* Actual volume/Budgeted volume. </li></ul><ul><li>Variable costs variance= Actual variable costs- budgeted variable costs </li></ul>
  53. 53. <ul><li>Investigation of variances: </li></ul><ul><li>Conferences with department managers, supervisors, employees of particular responsibility centre. </li></ul><ul><li>Analysis of work situation such as flow of work, coordination, effectiveness of supervision </li></ul><ul><li>On the spot investigation </li></ul><ul><li>Investigation by specialists </li></ul><ul><li>Internal audit </li></ul><ul><li>Special studies </li></ul>
  54. 54. Evaluation Standards <ul><li>Comparison with Predetermined standards/budgets </li></ul><ul><li>Historical Standards </li></ul><ul><li>External standards </li></ul>
  55. 55. Limitations of variance analysis <ul><li>Unless accompanied by root cause analysis only the variance figures do not mean anything. </li></ul><ul><li>Does not indicate whether any action is taken </li></ul><ul><li>Does give indication: how much variance is acceptable </li></ul><ul><li>Good performance by one product may offset bad performance by other </li></ul><ul><li>Reports only show what has happened, but does give any indications of the effects of actions taken. </li></ul>
  56. 56. <ul><li>Principle of analysis of formal financial reports: The monthly profit report should not contain any major surprises. </li></ul><ul><li>One of the most important benefits of formal reporting is that it provides the desirable pressure on sub ordinate managers to take corrective actions on their own initiative. </li></ul>
  57. 57. Management Control in service organizations <ul><li>The organizations which produce/deliver and market intangible services are called service organizations. e.g. Professional, financial services, Healthcare, R & D, Nonprofit organizations. </li></ul>
  58. 58. Characteristics of Service organizations <ul><li>Absence of inventory buffer </li></ul><ul><li>Difficulty in controlling quality </li></ul><ul><li>Labour intensive </li></ul><ul><li>Multi unit </li></ul>
  59. 59. Management control system for banks <ul><li>Characteristics of Bank: </li></ul><ul><li>Highly diversified </li></ul><ul><li>Several variety of products </li></ul><ul><li>Wide geographical spread </li></ul><ul><li>Structure of bank into HO, zonal offices, regional offices, and branches </li></ul><ul><li>Concern for quality of service and customer care </li></ul><ul><li>Importance of effective internal controls and decision making </li></ul><ul><li>Treasury and risk management </li></ul><ul><li>Control on operations by Reserve Bank </li></ul>
  60. 60. <ul><li>Long Range Plan </li></ul><ul><li>Macro environmental analysis </li></ul><ul><li>Banking scenario analysis </li></ul><ul><li>Vision mission and plan </li></ul><ul><li>Corporate objectives </li></ul><ul><li>Business projections </li></ul>
  61. 61. <ul><li>Performance budgeting and control systems </li></ul><ul><li>Resource mobilization </li></ul><ul><li>Credit to different segments e.g. Industry, agriculture, foreign trade </li></ul><ul><li>Risk management </li></ul><ul><li>Management of NPAs </li></ul><ul><li>Norms for expenses </li></ul><ul><li>HR </li></ul><ul><li>Branch expansion and growth </li></ul>
  62. 62. <ul><li>Operational Control System: </li></ul><ul><li>Direct Control: Visit of Senior officer from controlling office </li></ul><ul><li>Indirect Control: </li></ul><ul><li>Daily position of cash </li></ul><ul><li>Report excess withdrawals/cc accounts </li></ul><ul><li>Weekly reports </li></ul><ul><li>Monthly return of loans and advances sanctioned by branch </li></ul><ul><li>Monthly overdrafts </li></ul><ul><li>Monthly branch performance reports </li></ul><ul><li>Quarterly reports </li></ul><ul><li>Report of NPAs </li></ul>
  63. 63. Non profit organizations <ul><li>The organizations for which Profit is not the motive of operations </li></ul><ul><li>Educational Institutes, Hospitals, Research organizations, old age homes, Schools for physically handicapped, blind home, clubs, orphanages. </li></ul>
  64. 64. MCS for non profit organizations <ul><li>Funding, growth and controls are three dimensions to be taken care of. </li></ul>
  65. 65. Various types of co-operatives <ul><li>Production oriented </li></ul><ul><li>Service oriented </li></ul><ul><li>Non profit </li></ul>
  66. 66. Balanced Score Card
  67. 67. Balanced Score card system of performance measure is developed by Kaplan and Norton in 1992 <ul><li>BSC is a mechanism for linking long term objectives with short term operational performance of unit </li></ul><ul><li>In absence of specific measures carefully established for operating levels, the management of units can not clearly visualize the link between the activities they manage and the corporate vision, mission and objectives </li></ul>
  68. 68. <ul><li>The balanced score card is an example of holistic performance measurement system. As per this system business units should be assigned goals and measures from four perspectives </li></ul><ul><li>Financial </li></ul><ul><li>Customer </li></ul><ul><li>Internal business </li></ul><ul><li>Innovation and learning </li></ul>
  69. 69. Four perspectives <ul><li>Financial </li></ul><ul><li>Inventory/Turnover ratio </li></ul><ul><li>Cost Per Unit </li></ul><ul><li>Hidden Factory </li></ul><ul><li>Activity Based Costing </li></ul><ul><li>Cost Of Poor Quality </li></ul><ul><li>Overall Project Savings </li></ul><ul><li>Return on capital employed </li></ul><ul><li>Gross profit margin </li></ul><ul><li>Cash Flow </li></ul>
  70. 70. <ul><li>Customer </li></ul><ul><li>Customer Satisfaction/Customer complaints </li></ul><ul><li>On Time Delivery </li></ul><ul><li>Final Product Quality </li></ul><ul><li>Safety Communications </li></ul><ul><li>Customer retention Ratio </li></ul><ul><li>Market Share </li></ul><ul><li>Internal Business Processes </li></ul><ul><li>Defects, Inspection Data, DPMO, Sigma Level </li></ul><ul><li>No. of suppliers as strategic partners </li></ul><ul><li>Supplier Quality </li></ul><ul><li>Through put time </li></ul><ul><li>Quantity Dispatched </li></ul><ul><li>Rework Hours </li></ul><ul><li>Reduction in accidents/Pollution levels </li></ul>
  71. 71. <ul><li>Innovation and Learning </li></ul><ul><li>Quality of Training </li></ul><ul><li>No. of training hours per employee </li></ul><ul><li>Meeting Effectiveness </li></ul><ul><li>Lessons Learned </li></ul><ul><li>Improvement in staff morale </li></ul><ul><li>Project Schedule Versus Actual Date </li></ul><ul><li>Number of Projects Completed /New products introduced </li></ul><ul><li>Revenue from new products </li></ul><ul><li>No of suggestions received and implemented </li></ul><ul><li>Total Savings To Date </li></ul>
  72. 72. <ul><li>In creating balanced score card managers must choose mix of measurements that </li></ul><ul><ul><li>Accurately reflect critical factors </li></ul></ul><ul><ul><li>Show relation ships among measures in cause and effect manner indicating how non-financial measures affect long term financial results </li></ul></ul><ul><ul><li>Provide broad based view of the current status of the company </li></ul></ul>
  73. 75. Activity Based Costing (ABC) <ul><li>Activity Based Costing is a system that focuses on activities as the fundamental cost generators and uses the costs of these activities as building blocks for compiling cost of the products. </li></ul>
  74. 76. <ul><li>Steps in following ABC system: </li></ul><ul><ul><li>Identify the major activities that take place in the organization </li></ul></ul><ul><ul><li>Determine the cost driver for each activity </li></ul></ul><ul><ul><li>Create a cost center for each major activity </li></ul></ul><ul><ul><li>Trace the cost of activities to products according to requirements by the products. </li></ul></ul><ul><li>In ABC system the costs traced for </li></ul><ul><ul><li>Unit level activity </li></ul></ul><ul><ul><li>Batch level activity </li></ul></ul><ul><ul><li>Product level activity </li></ul></ul><ul><ul><li>Facility level activity </li></ul></ul><ul><li>ABC improves decision making </li></ul><ul><ul><li>Pricing </li></ul></ul><ul><ul><li>Market segments, Distribution </li></ul></ul><ul><ul><li>Make-buy decisions </li></ul></ul><ul><ul><li>Transfer pricing </li></ul></ul><ul><ul><li>Plant closing </li></ul></ul><ul><ul><li>Capital investment. </li></ul></ul>
  75. 77. Methods for Sales Forecasting <ul><li>Steps in Sales planning: </li></ul><ul><li>Establishing foundation </li></ul><ul><li>Sales forecasting activities---Economic analysis, Industry forecasts, analysis of past trends, Taking help of staff specialists </li></ul><ul><li>Management judgment applied </li></ul>
  76. 78. <ul><li>Causal approach </li></ul><ul><li>Non causal approach </li></ul><ul><li>Direct or Indirect </li></ul><ul><li>OR </li></ul><ul><li>Sales force feedback </li></ul><ul><li>Sales manager’s judgment </li></ul><ul><li>Executive opinion </li></ul><ul><li>OR </li></ul><ul><li>Economic rhythm or trend </li></ul><ul><li>Cyclical sequence </li></ul><ul><li>Special history analogy </li></ul><ul><li>Crosscut methods </li></ul><ul><li>OR </li></ul><ul><li>Industry analysis </li></ul><ul><li>Product analysis </li></ul><ul><li>End use method </li></ul>